Amplats: rand to the rescue (for now)

The rand – one of the weaker EM currencies in 2013 – has come to the rescue of Anglo American Platinum.

Headline earnings at Amplats (as the company is known) rose 88 per cent to R1.3bn ($132m) on revenues up 24 per cent to R24.1bn. That’s pretty much where the good news runs out, though.

Of the 24 per cent revenue increase, more than half – R2.9bn of the R4.7bn – was due to “higher average realised rand prices”, according to the company, and the rest due to higher sales volumes.

Shares in Amplats rose 2.14 per cent in Johannesburg on Monday. But the rand movement masked deeper problems for the miner. As James Wilson wrote for the FT: “Amplats is controlled by Anglo American and its restructuring is one of the key challenges facing Mark Cutifani, Anglo’s chief executive, who will this week set out his strategic plans for the group three months after succeeding Cynthia Carroll”.

And the share price story for 2013 makes grim reading too. Amplats is down 34 per cent in 2013. Platinum prices are down just under 8 per cent. While miners often underperform their primary product, this highlights the concerns investors have over South African mining, which has been blighted by strikes, violence and is currently undergoing tough wage negotiations with the unions.

Amplats said in its statement:

Primary supply challenges are expected to continue during 2013 with higher mining inflation putting pressure on margins and increased risk of supply disruptions from industrial action in South Africa. The current depressed price has reduced operating margins and consequently capital investment in sustaining current and increasing future production has reduced significantly.

The company is looking to cut 6,000 jobs, and also wants to close some mine shafts as well as cut production.

As Credit Suisse summed it up:

Platinum cash flows remain weak: the dividend remains suspended and Amplats net debt increased from R10.5bn end 2012 to R13.2bn end June: operating cash flow was just above break-even in H1 against investment cash flows of R2.8bn. Without a recovery in prices, the balance sheet is set to worsen further in H2 due to lower prices (current spot vs. H1 average), higher unit costs (higher labour and power costs in H2) and higher capex HoH.

That doesn’t sound particularly optimistic.

Related reading:
Amplats earnings boost group as it faces restructuring pressure, FT
Amplats hit by fresh wildcat strike
, FT
Thousands held underground as South Africa’s mining woes deepen
, FT